Thursday, 14 June 2012

The Untold Story: The ACCC's Role in the Waterfront Dispute


Part 17 – The Settlement – Part 2

Introduction
As outlined in the Part 16 of The Untold Story, in July and August 1998 the ACCC was being heavily criticised by all of the players involved in the Waterfront Dispute for refusing to settle its case by simply walking away. Indeed, it was quite a remarkable achievement of the ACCC to have unified all the warring parties against it in this way.

Quandary
Amongst all the criticism, there was some support for the ACCC’s position from an unlikely quarter – namely, Terry McCrann.

McCrann was almost alone in expressing his understanding of, and support for, the ACCC's position.  In an opinion piece in the Herald Sun on 5 August 1998, entitled “Fels and the law get in the way of the peace deal”,[1] McCrann insightfully described the dilemma facing the ACCC.

Trustbuster Allan Fels has become the embarrassing uninvited guest at the waterfront party that everyone is trying to pretend it really isn't there.

It's not because he spiked the punch, then immediately polished it off, and is now behaving like an all-round hoon.

In fact the exact opposite. It's like he's just - politely – reminded the partygoers that smoking pot is still illegal. And, well, the law must be enforced.

McCrann continued:

But we ended up with a classic IR ‘deal’ to settle the dispute, and the MUA agreed to abandon its conspiracy action against its two opponents.

The only problem was that Fels and his ACCC had initiated separate actions under the Trade Practices Act against the MUA for its actions during the dispute.

Not unreasonably – in IR terms – the MUA wants this action called off as part of the overall ‘deal’. If it abandons its legal action against Patrick/government, so should actions against it (be abandoned).

This would also be perfectly reasonable in ordinary legal terms, if the action was being taken by Patrick and/or the government. You scratch my back and I'll tickle yours.

Trouble is, the action is by a quite independent party, charged with enforcing the law. It can't – and most definitely should not – simply back off to facilitate the ‘deal’.

Fels spelt this out in crystal clear terms last night, when he said quite simply the ACCC could not just turn a blind eye to substantial, very public breaches of the law.

Further, to do so would open a Pandora's Box. It would set the precedent to every other transgressor to plead a similar argument.

It would only destroy the credibility of the ACCC and Fels himself…

Imagine if the police turned a blind eye to crimes when they could be persuaded it ‘suited’ various parties.

Fels is seeking two things. That the MUA offer a settlement for the damage caused innocent third parties during the dispute as a result of its allegedly illegal behaviour.

And that it promise not to engage in those allegedly illegal acts again.

The second might be easy, except that in IR terms it would amount to the MUA unilaterally disarming itself for future fights. On pain of very heavy penalties.

While the first is much harder, because Fels is talking big dollars. A figure of $10 million has been tossed around.

Such a settlement would have to come from the MUA, and it is unlikely to pay that sort of money willingly, as it feels its members were hard done by the dispute.

And after all, it’s given up its options for suing the government/Patrick.

In practice, some or all of the money should come from Patrick, as part of the price of settling the dispute.

McCrann concluded with the following:

In short, there is no easy way to get Fels off the MUA’s back. And it hasn't helped that the MUA has tried to pretend that the ACCC wasn't there.

On the one hand, the MUA told the ACCC in mid-June that it would come back with a settlement proposal. It never has.

And on the other, MUA secretary John Coombs just blusters in public, saying that Fels should join the deal and abandon the litigation like everyone else.

It's a completely false argument. Fels has to enforce the law. He can agree a settlement, but he just can't ignore the damage the MUA did.

The most interesting aspect of McCrann's article was a suggestion that Patrick should contribute to compensating parties for the financial damages caused by the MUA. At that time, I thought that his suggestion that Patrick pay the MUA’s damages bill was pretty outlandish. However, that is exactly what ended up happening.

MUA digs in
McCrann's references to John Coombs, blustering in the media was a reference to the following types of statements which he was making at that time:[2]

I'll tell you something now: if Fels doesn't drop off, the whole peace deal is over. Why would I withdraw my rights to take [the Minister for Workplace Relations] Mr Peter Reith and Patrick to trial to face conspiracy allegations and leave myself exposed to Fels handful of exporters or importers with its $10  to $20 million worth of damages? Jesus Christ… I have lost my senses and I'm not about to.

Greg Combet was also adamant that the MUA would not pay any damages:

It’s in the public interest that the ACCC should drop off and they have an obligation under their Act to have regard to the public interest.[3] 

Combet described the ACCC’s demands that the MUA would have to pay damages for their illegal conduct as “just fantasy”.

Coombs continued his assault on the ACCC with the following letter to the editor which I will quote at length:[4]

Your [AFR’s] leader writer describes the waterfront dispute as a punch-up between “two drunks”, the MUA and Patrick, in the front bar (“Fels stands up to Coombs”, AFR editorial, August 5). Everyone else, you claimed, was an innocent bystander.

Well, there were more than two in the ring a bit punch drunk during the great docks fight. The fight broke all the rules of fair play, with “promoter” Reith forever claiming the MUA was down when we were still well and truly on our feet.

Ten out of the 11 judges agreed the union had a case and that evidence suggested Patrick and others had conspired to have the workforce illegally sacked for being members of the union. The referee, in this case the High Court, ended the contest with the MUA winning on points.

Isn't it, then, a bit below the belt for your leader writer to now egg on the pugnacious Professor Fels, challenging the union to pay out $10 million in damages when we have not been found guilty of anything?

Now the brawl is over, the ACCC wants to pick a fight with the union, while turning a blind eye to those really responsible for any bruising that business suffered.

The hypocrisy of the ACCC tenaciously pursuing the union, while ignoring other complaints, is well documented. Not so long ago the ACCC failed to take on foreign shipowners over alleged price-fixing collusion.

The ACCC declined to assist importers in 1995 – 1996, despite requests from the Australian importers and despite legal advice that the price increases on freight could have been in breach of the Trade Practices Act.

The price hikes are estimated to have cost the Australian community between $45 million and $90 million over the past three years – costs which have been passed onto Australian consumers in the prices of the imported goods they buy and which far exceed the $10 million in damages allegedly caused by the waterfront dispute.

Well, if Professor Fels wants to take on the MUA, so be it. But if he continues with the ACCC legal action the matter could well end up back in the courts as early as next week. The implementation of the Deed of Settlement depends on the condition precedent that ACCC litigation “be discontinued, settled or dealt with to the reasonable satisfaction of the MUA”. It is worth noting that Mr Reith, if not Professor Fels, is a signatory to the deed.

These comments from Coombs provoked a swift response from Professor Fels who immediately issued the following news release:
ACCC not 'soft' on applying Trade Practices Act[5]

The Maritime Union of Australia is claiming that the ACCC is soft in applying the Trade Practices Act 1974 to business, Australian Competition and Consumer Commission Chairman, Professor Allan Fels, said today.

In fact the ACCC is widely acknowledged to have been extremely vigorous in applying the Trade Practices Act to break up price-fixing and other cartel agreements; the abuse of market power by monopolists; anticompetitive mergers; misleading and deceptive conduct; and unconscionable conduct affecting small business and consumers. It has applied the law without fear or favour to the biggest and most powerful corporations and interests in the land.

The MUA has cited a particular 1995/96 decision not to pursue a price increase by some importers. The key point is that there is a major exemption to prices by shippers written into Part X of the Act. This has been strongly supported by the MUA. The ACCC has strongly opposed this exemption for many years and has tried to get it lifted. 

It was essentially because of the Part X exemption that the 1995/96 price rise was not pursued to litigation. Every enforcement agency, no matter whether vigorous or lax, has marginal cases. The 1995/96 price rise was marginal to negative in the ACCC's assessment. A very selective quotation has been taken from an ACCC letter to the industry at the time - even that letter makes it clear that the matter was at most marginal. 

What is not said is that as a result of the ACCC's preliminary investigations the price increase was withdrawn (although later some of the increases may have found their way into unambiguously exempt freight charges). 

More generally the ACCC has been vigorous in applying the law to the waterfront. It vigorously opposed with success the attempt by P&O to take over the bulk of Port Adelaide some years ago. As a result a new entrant, Sealand, entered the Australian market. It recently opposed Adsteam tugboat mergers in Sydney in court (even though it effectively lost that case). This is not to say that there are not limitations on the effectiveness of the Act in relation to the waterfront. The Act can foster competition, it cannot force it in certain industry structures. 

The MUA's claims cannot be taken seriously. They are simply a crude attempt to discredit an independent regulator doing its job properly and to divert attention from issues affecting parties to the recent dispute on the waterfront. 
On that same day, the ACCC issued a second news release following comments attributed to Patrick about its future pricing strategies:[6]
ACCC asks Patrick to explain pricing comments
The Australian Competition and Consumer Commission has asked Patrick Stevedore to explain its pricing policies after the resolution of the waterfront dispute. The request follows claims made in the Australian Financial Review where it is reported: 

'While Patrick has said publicly it is reviewing pricing, it is understood the company - while promising improved efficiencies and reliability - will resist prices reductions'. 

Public statements by Patrick that it is not intending to pass on cost savings in the form of reduced prices, prior to the conclusion of contract negotiations, may be construed as a sign of a lack of competition, ACCC Chairman, Professor Allan Fels, said today.

It is also difficult in most industries to predict what a firm's own prices will be without knowing what other firms in the industry will charge. The ACCC has asked Patrick about this aspect, that is, is their prediction based on a knowledge of the price of their competition?

The ACCC has sought information about whether any comments have been made by Patrick management or employees, since the agreement with the Maritime Union of Australia was announced on 25 June, that it is not intending to pass on any cost savings in the form of reduced prices for stevedoring.

Further, the ACCC has asked Patrick if it is its present intention to pass on savings achieved as a result of the agreement with the MUA.

The ACCC was concerned that Patrick may be engaging in price signaling – effectively, seeking to signal its future pricing intentions to its major stevedoring competitor, P&O Ports.  There is little doubt that P&O was concerned that Patrick may use its lower cost structures to drop stevedoring prices in order to win business.  However, P&O responded to this threat by seeking a similar outcome to Patrick. It entered into negotiations with the government and the MUA to reduce its MUA workforce. It was also able to avoid having to pay its redundancy liabilities out of its own resources because it was able to access the special stevedoring levy introduced by the government to fund MUA redundancies.

Settlement
While the recriminations kept flying between Professor Fels and John Coombs in the media, there had actually been some significant progress behind the scenes in terms of settling the ACCC’s litigation.  The break came when Chris Corrigan agreed to make a contribution towards compensating the small businesses which had been damaged by the MUA’s conduct.

I must admit that, to this day, I do not know who had the idea to get Patrick to pay the compensation on behalf of the MUA.  While the idea had been first raised by Terry McCrann in his article quoted above, I do not know who internally at the ACCC came up with the idea. 

However, I understood why Patrick had agreed to paying compensation.  Patrick was quite desperate to settle the dispute so they could get back to work with their new streamlined MUA workforce.  It was apparent to us that with the loss of a few hundred MUA workers and the fact that these redundancies were to be paid for, not by Patrick, but through an industry levy, that Patrick would become a very profitable company very quickly.

Despite not knowing where the idea came from, I saw the logic of this approach to the settlement. It was clear in my mind that Patrick’s actions had triggered the entire dispute and as such they could and should be held to account for the damages.

On 1 September 1998, with most of the details of settlement worked out, the ACCC was confident enough to issue a news release announcing the details of the settlement:

Waterfront dispute case settled[7]


A settlement has been reached in relation to the Australian Competition and Consumer Commission litigation concerning the waterfront.

The settlement has been endorsed today by the Federal Court of
Australia. 

The settlement provides that a damages fund of up to $7.5 million, funded by Patrick Stevedore Holdings Pty Ltd, will be available for small businesses damaged by the boycotts during the dispute.

Also, the Maritime
Union of Australia has provided a formal undertaking to the Federal Court not to repeat boycotts alleged to be unlawful by the ACCC during the dispute.

The damages fund will be administered by a trustee and payments will be subject to proof of losses arising from the waterfront dispute.

Small businesses which do not have an alternative claim for compensation, such as insurance, will be given priority over other claimants on the fund. A limit will be set on individual claims.

The undertaking is for two years.

There is an associated dispute settlement procedure.

The undertaking does not apply to normal industrial relations actions protected under the TPA or Workplace Relations Act 1996. It also does not apply to lawful conduct to ensure compliance with relevant occupational health and safety legislation nor for the protection of international seafarers through the MUA's flags of convenience campaign.

The ACCC is satisfied with the outcome, ACCC Chairman, Professor Allan Fels, said today. Its objectives were:

·   compensation to small business damaged by the dispute; and
·   an appropriate undertaking to the Court by the MUA, as is usual in TPA cases, not to repeat similar behaviour.

These objects have been met and the ACCC has agreed to settle the case.

 

We also decided to add the following comments in a “Background” section to the news release to fully explain the ACCC’s position in pressing for this settlement:

Background
In 1996 Federal Parliament greatly strengthened the secondary boycott provisions of the Trade Practices Act 1974.

The ACCC is responsible for seeking compliance with the Act. The ACCC did not take sides in the waterfront dispute but it was concerned to ensure that there were no breaches of the law during that dispute.

The ACCC believes that there were substantial, very public breaches of the boycott provisions of the Act which damaged small business and exporters. It issued several warnings to the MUA which were ignored. It had no option then but to take court action. It did not seek penalties. Its actions were directed to obtaining compensation for small businesses damaged by unlawful boycott behaviour and securing of appropriate court orders or undertakings to the Court by the MUA not to repeat similar unlawful behaviour in the future (a standard Trade Practices Act resolution).

The parties to the dispute approached the ACCC in mid-June about a settlement. The ACCC made it clear that it was prepared to settle and advised the parties of the parameters of a possible settlement. These included a compensation fund and a consent court order or an undertaking to the Court which had a similar effect. 

Regarding the funding of the compensation payment the ACCC indicated at all times that it had no views as to who paid as it was not involved in taking sides in the rights and wrongs of the waterfront dispute. Its concern was merely the protection of the legitimate interests of small businesses damaged by unlawful actions that occurred during the dispute. There was no effective response by the parties to these proposals until last week. Claims by the MUA that the ACCC was delaying completion of the total agreement on the waterfront were without foundation. Claims that the total resolution of the waterfront dispute would 'come undone' unless the ACCC withdrew its case always lacked foundation and were merely an attempt to avoid compliance with the ACCC's reasonable proposals for settlement.

The ACCC is continuing to investigate a number of matters on the product market side of the waterfront. 

The ACCC has perceived it as important to the integrity of the Act that it should have sought to uphold the law during the dispute.

As stated above, the settlement consisted of two parts. 

First, there was an agreement by Patrick to pay up to $7.5 million into a trust fund to compensate small businesses who had suffered loss or damage as a result of the Waterfront Dispute. The reason the amount was expressed as “up to $7.5 million” was because the amount which Patrick ultimately had to contribute to the fund depended on particular conditions being met.  As it turned out these conditions were not met, so Patrick only ever had to contribute a total amount of $5 million to the fund.

Second, the MUA consented to a range of injunctions in relation to their future conduct and an alternative dispute resolution procedure.

I will discuss the elements of the settlement in more detail in the next post.

Hiccup
Unfortunately, we did experience one strange hiccup in the last stages of the settlement which caused us considerable anxiety. 

As stated in the ACCC’s news release a settlement had been “endorsed by the Federal Court” on 1 September 1998.  This statement was true when we made it.

Once we had reached a settlement with the MUA and Patrick and agreed the proposed orders and undertakings with the MUA, we approached Justice North to have the orders made. Unfortunately, Justice North was unavailable to make the orders on 1 September 1998.

Accordingly, in the interests of settling the case sooner rather than later, we decided to approach Justice Beaumont (who was after all the judge hearing the larger and more significant of the two ACCC cases), to make the orders. Justice Beaumont made the orders in chambers and the ACCC issued its news release announcing the settlement later than day.

However, after we had obtained the orders and issued the media release, we received advice from the Federal Court that Justice Beaumont had withdrawn his orders and that the orders would now be made by Justice North on 3 September 1998.  While we never knew the precise reasons for this strange development, I have my own personal theory about what happened.

Justice North decided to hold a hearing to make the orders. After some fanfare Justice North, made the requested orders finally settling the dispute on 3 September 1998.

Justice North obviously liked some aspects of the settlement as he went so far as to congratulate the parties:

I congratulate the parties upon resolution of a most difficult dispute in a way which appears to be creative and innovative.

Justice North’s orders were followed shortly thereafter by Justice Beaumont remaking his earlier orders.


[1] Terry McCrann, Fels and the law get in the way of a peace deal, Herald Sun, 5 August 1998, pp. 29, 31.
[2]  Peace deal docks but stays on hold, Financial Review, 5 August 1998, p. 5.
[3] Dispute casts pall over docks deal, Financial Review, 6 August 1998, p. 5.
[4] Docks jibe takes wrong tack, Financial Review, 7 August 1998, p. 36.
[5] ACCC not 'soft' on applying Trade Practices Act, ACCC news release, dated 7 August 1998 - http://www.accc.gov.au/content/index.phtml/itemId/87249/fromItemId/378006
[6] ACCC asks Patrick to explain pricing comments,  ACCC news release, 7 August 1998 - http://www.accc.gov.au/content/index.phtml/itemId/87251/fromItemId/378006
[7] Waterfront case settled, ACCC news release, dated 1 September 1998 - http://www.accc.gov.au/content/index.phtml/itemId/87233/fromItemId/378006

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